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CRESTWOOD RRH, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
  PAGEIndependent Auditors Report Letter
    
    2Financial Statements:Balance Sheets
    
    3 & 4Statements of Operations
    
    5Statements of Changes in Partners Equity (Deficit)
    
    6Statements of Cash Flows
    
    7Notes to the Financial Statements
    
    8 - 10Supplemental Information:Schedules of Expenses
    
    11




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Tama, Budaj & Raab, P.C.ELY TAMA,
CPA*JEFFREY F. BUDAJ, CPAEMIL A. RAAB, CPA
    
Certified Public Accountants32783 MIDDLEBELT ROADFARMlNGTON HILLS, MICHIGAN 48334-1726
    
    MEMBERSBARTON A.
LOWEN, CPA
    
    (248) 626-3800
    
    AMERICAN INSTITUTE OFJOHN W. WEIPERT, CPA**
    
    FAX: (248) 626-2276
    
    CERTIFIED PUBLIC ACCOUNTANTSSEAN M. DONOVAN, CPA
    
    WWW.TBRCPA.COMTHOMAS D. MADOUSE, CPA
    
    
    
    MICHIGAN ASSOCIATION OFCERTIFIED PUBLIC ACCOUNTANTS*ALSO LICENSED IN FLORIDA
    
    
    
    FLORIDA INSTITUTE OFAND SOUTH CAROLINA
    
    
    
    CERTIFIED PUBLIC ACCOUNTANTS**ALSO LICENSED IN FLORIDA
    
    
    
    SOUTH CAROLINA ASSOCIATION OFCERTIFIED PUBLIC ACCOUNTANTS
 
 Independent Auditors Report
 
  as
   
  2




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CRESTWOOD RRH, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
 
 BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
  2006
    
    
    2005CURRENT ASSETSCash and cash equivalents
    
    $
    67,142
    
    
    $
    68,819Accounts receivable
    
    
    7,281
    
    
    
    11,930Prepaid expenses and other current assets
    
    
    500
    
    
    
    500TOTAL CURRENT ASSETS
    
    
    74,923
    
    
    
    81,249RESTRICTED DEPOSITS AND FUNDED RESERVESTenants security deposits
    
    
    49,750
    
    
    
    47,075Real estate tax and insurance escrow
    
    
    51,449
    
    
    
    52,672Replacement reserve escrow
    
    
    242,242
    
    
    
    176,076TOTAL RESTRICTED DEPOSITS
AND FUNDED RESERVES
    
    
    343,441
    
    
    
    275,823RENTAL PROPERTYBuildings and components
    
    
    8,551,027
    
    
    
    8,521,590Development and acquisition fees
    
    
    1,877,705
    
    
    
    1,877,705Furniture and equipment
    
    
    798,528
    
    
    
    717,76711,227,260
    
    
    
    11,117,062Less accumulated depreciation
    
    
    (5,950,079
    )
    
    
    (5,634,593
    )5,277,181
    
    
    
    5,482,469Land
    
    
    360,000
    
    
    
    360,000NET RENTAL PROPERTY
    
    
    5,637,181
    
    
    
    5,842,469OTHER ASSETDeferred loan costs (net of amortization)
    
    
    116,548
    
    
    
    127,144$
    6,172,093
    
    
    $
    6,326,685
 The accompanying notes are an integral part of these financial statements.

    
    
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CRESTWOOD RRH, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
 BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
  2006
    
    
    2005CURRENT LIABILITIESCurrent maturities of
long-term debt
    
    $
    170,247
    
    
    $
    155,261Accounts payable
    
    
    429,360
    
    
    
    320,729Accrued management fee
    
    
    100,000
    
    
    
    80,000Accrued interest
    
    
    25,634
    
    
    
    26,831TOTAL CURRENT LIABILITIES
    
    
    725,241
    
    
    
    582,821DEPOSITS AND PREPAYMENT LIABILITIESTenants security deposits
    
    
    49,750
    
    
    
    47,075LONG-TERM LIABILITIESLoan payable  affiliate
    
    
    55,000
    
    
    
    55,000Mortgage payable
    
    
    3,325,463
    
    
    
    3,480,724Less current maturities
    
    
    (170,247
    )
    
    
    (155,261
    )Advances from General Partner
    
    
    131,168
    
    
    
    92,168TOTAL LONG-TERM LIABILITIES
    
    
    3,341,384
    
    
    
    3,472,631TOTAL LIABILITIES
    
    
    4,116,375
    
    
    
    4,102,527PARTNERS EQUITY (DEFICIT)
    
    
    2,055,718
    
    
    
    2,224,158$
    6,172,093
    
    
    $
    6,326,685
 
 The accompanying notes are an integral part of these financial statements.

    
    
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CRESTWOOD RRH, LTD.
 
 STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005REVENUES:Rental
    
    $
    1,310,504
    
    
    $
    1,161,905Laundry
    
    
    2,576
    
    
    
    3,747Security deposits earned
    
    
    18,323
    
    
    
    18,244Other
    
    
    34,293
    
    
    
    50,515TOTAL REVENUES
    
    
    1,365,696
    
    
    
    1,234,411EXPENSES:Maintenance and operating
    
    
    387,606
    
    
    
    294,302Utilities
    
    
    43,634
    
    
    
    47,052Administrative
    
    
    226,297
    
    
    
    212,761Taxes and insurance
    
    
    206,984
    
    
    
    177,978Interest
    
    
    314,297
    
    
    
    328,070Depreciation and amortization
    
    
    406,673
    
    
    
    409,975TOTAL EXPENSES
    
    
    1,585,491
    
    
    
    1,470,138INCOME (LOSS) FROM RENTAL OPERATIONS
    
    
    (219,795
    )
    
    
    (235,727
    )OTHER INCOME AND (EXPENSES)Interest income
    
    
    3,524
    
    
    
    1,684Partnership management and reporting fees
    
    
    (20,000
    )
    
    
    (20,000
    )Gain (loss) on disposition of rental property
    
    
    (31,607
    )
    
    
    (4,668
    )Insurance  loss of rent
    
    
    -0-
    
    
    
    56,569Gain (loss) from involuntary conversion
    
    
    -0-
    
    
    
    (138,298
    )TOTAL OTHER INCOME AND (EXPENSES)
    
    
    (48,083
    )
    
    
    (104,713
    )NET INCOME (LOSS)
    
    $
    (267,878
    )
    
    $
    (340,440
    )
 
 The accompanying notes are an integral part of these financial statements.

    
    
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CRESTWOOD RRH, LTD.
 
 STATEMENTS OF CHANGES IN PARTNERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
 General
    
    
    LimitedTotal
    
    
    Partner(s)
    
    
    Partner(s)Partners equity (deficit)  January 1, 2005
    
    $
    2,564,598
    
    
    $
    331,152
    
    
    $
    2,233,446Net income (loss)
    
    
    (340,440
    )
    
    
    (3,404
    )
    
    
    (337,036
    )Partners equity (deficit)  December 31, 2005
    
    
    2,224,158
    
    
    
    327,748
    
    
    
    1,896,410Net income (loss)
    
    
    (267,878
    )
    
    
    (2,679
    )
    
    
    (265,199
    )*Prior period adjustment
    
    
    99,438
    
    
    
    994
    
    
    
    98,445Partners equity (deficit)  December 31, 2006
    
    $
    2,055,718
    
    
    $
    326,063
    
    
    $
    1,729,656
 
 *
    
    Prior year net losses from involuntary conversion have been capitalized to building and
components. 
 The accompanying notes are an integral part of these financial statements.

    
    
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CRESTWOOD RRH, LTD.
 
 STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (267,878
    )
    
    $
    (340,440
    )Adjustments to reconcile net income (loss)
to net cash provided by (used by) operating
activities:Depreciation and amortization
    
    
    406,673
    
    
    
    409,975(Gain) loss on disposal of rental property
    
    
    31,607
    
    
    
    4,668(Gain) loss from involuntary conversion
    
    
    -0-
    
    
    
    138,298Changes in:Accounts receivable
    
    
    4,649
    
    
    
    (9,240
    )Prepaid expenses and other current assets
    
    
    -0-
    
    
    
    675Tax and insurance escrow
    
    
    1,223
    
    
    
    (23,670
    )Accounts payable
    
    
    108,631
    
    
    
    121,332Accrued expenses
    
    
    18,803
    
    
    
    18,909TOTAL ADJUSTMENTS
    
    
    571,586
    
    
    
    660,947NET CASH PROVIDED BY (USED BY)
OPERATING ACTIVITIES
    
    
    303,708
    
    
    
    320,507CASH FLOWS FROM INVESTING ACTIVITIES:Deposits to reserve for replacements
    
    
    (66,166
    )
    
    
    (30,038
    )Purchase of rental property
    
    
    (122,958
    )
    
    
    (22,249
    )Gain (loss) from involuntary conversion
    
    
    -0-
    
    
    
    (138,298
    )NET CASH PROVIDED BY (USED BY)
INVESTING ACTIVITIES
    
    
    (189,124
    )
    
    
    (190,585
    )CASH FLOWS FROM FINANCING ACTIVITIES:Advances from General Partner
    
    
    51,000
    
    
    
    23,183Repayments to General Partner
    
    
    (12,000
    )
    
    
    -0-Advances from related party
    
    
    -0-
    
    
    
    (21,000
    )Principal payments on mortgage loan
    
    
    (155,261
    )
    
    
    (141,594
    )NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES
    
    
    (116,261
    )
    
    
    (139,411
    )NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
    
    
    (1,677
    )
    
    
    (9,489
    )CASH AND CASH EQUIVALENTS  BEGINNING OF YEAR
    
    
    68,819
    
    
    
    78,308CASH AND CASH EQUIVALENTS  END OF YEAR
    
    $
    67,142
    
    
    $
    68,819SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the year for interest
    
    $
    315,494
    
    
    $
    329,161
 The accompanying notes are an integral part of these financial statements.

    
    
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CRESTWOOD RRH, LTD.
 
 NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
 A.
    
    ORGANIZATION
 The Partnership was formed as a Limited Partnership under the laws of the State of Florida, on
December 13, 1989, for the purpose of acquiring land, owning, constructing and operating a 216
unit multi-family rental housing project.
 B.
    
    SIGNIFICANT ACCOUNTING POLICIES
 Accounting Method
  Property and Equipment
  Amortization
  Rental Income
  Use of Estimates
  Cash and Cash Equivalents
  C.
    
    INCOME TAXES
 No income tax provision has been included in the financial statements because income or loss of
the Partnership is required to be reported by the respective partners on their income tax
returns.
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CRESTWOOD RRH, LTD.
 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
 D.
    
    MORTGAGE PAYABLE
    2007
    
    $
    170,2472008
    
    
    186,6802009
    
    
    204,7002010
    
    
    224,4582011
    
    
    246,124Thereafter
    
    
    2,293,254$
    3,325,463
 E.
    
    TRANSACTIONS WITH RELATED PARTIES
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CRESTWOOD RRH, LTD.
 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2006 AND 2005
 F.
    
    VULNERABILITY DUE TO CERTAIN CONCENTRATIONSThe Partnerships operations are concentrated in the multifamily real estate market. In
addition, the Partnership operates in a heavily regulated environment. The operations of the
Partnership are subject to the administrative directives, rules and regulations of federal,
state and local regulatory agencies. Such administrative directives, rules and regulations are
subject to change by acts of or administrative changes mandated by these regulatory agencies.
Such changes occur with little notice or inadequate funding to pay for the related cost,
including the additional administrative burden, to comply with a change.G.
    
    GAIN (LOSS) FROM INVOLUNTARY CONVERSIONThe Project sustained hurricane damage during 2004 and carries commercial insurance to cover
the damages. During 2005 the Project received proceeds from the insurance company of $123,416,
and spent $261,714 for repairs relating to the damage. The net amount of $(138,298) for 2005 is
reported in the Statement of Operations under the caption Gain (loss) from involuntary
conversion.H.
    
    TAXABLE INCOME (LOSS)A reconciliation of financial statement net income (loss) to taxable income (loss) of the
Partnership for the years ended December 31, 2006 and 2005 is as follows:
 2006
    
    
    2005Financial statement net income (loss)
    
    $
    (267,878
    )
    
    $
    (340,440
    )Adjustments:Depreciation
    
    
    (8,837
    )
    
    
    -0-Gain (loss) on disposition of asset
    
    
    (60
    )
    
    
    -0-Gain (loss) from involuntary
conversion
    
    
    -0-
    
    
    
    138,298Taxable income (loss)
    
    $
    (276,775
    )
    
    $
    (202,142
    )
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CRESTWOOD RRH, LTD.
 
 SCHEDULES OF EXPENSES
 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005MAINTENANCE AND OPERATINGRepairs  payroll
    
    $
    69,197
    
    
    $
    67,689 supply
    
    
    65,967
    
    
    
    47,187 contract
    
    
    108,829
    
    
    
    51,749Painting and decorating
    
    
    28,030
    
    
    
    25,729Grounds
    
    
    36,868
    
    
    
    26,579Services
    
    
    40,572
    
    
    
    37,112Furniture and furnishing replacement
    
    
    38,143
    
    
    
    38,257$
    387,606
    
    
    $
    294,302UTILITIESElectricity
    
    $
    28,444
    
    
    $
    29,970Water
    
    
    2,793
    
    
    
    2,932Sewer
    
    
    4,775
    
    
    
    5,317Fuel
    
    
    3,145
    
    
    
    3,507Garbage and trash removal
    
    
    3,393
    
    
    
    4,403Other utilities
    
    
    1,084
    
    
    
    923$
    43,634
    
    
    $
    47,052ADMINISTRATIVESite management payroll
    
    $
    34,724
    
    
    $
    43,463Management fee
    
    
    78,901
    
    
    
    77,533Auditing
    
    
    8,691
    
    
    
    13,269Legal
    
    
    16,977
    
    
    
    4,550Advertising
    
    
    13,429
    
    
    
    15,897Telephone
    
    
    5,436
    
    
    
    4,185Office supplies
    
    
    37,300
    
    
    
    26,965Health insurance
    
    
    7,687
    
    
    
    7,336payroll taxes
    
    
    10,592
    
    
    
    10,035Training
    
    
    325
    
    
    
    797Workmens compensation
    
    
    6,998
    
    
    
    8,731Other administrative expenses
    
    
    5,237
    
    
    
    -0-$
    226,297
    
    
    $
    212,761TAXES AND INSURANCEReal estate taxes
    
    $
    131,021
    
    
    $
    125,923Other taxes, licenses and permits
    
    
    1,451
    
    
    
    2,162Property and
liability insurance
    
    
    74,512
    
    
    
    49,893$
    206,984
    
    
    $
    177,978
 11